Albertsons ‘For Sale’ Again
By George Anderson
A report last week in the New York Post said that major shareholder anger over Albertsons’ decision to pass on a $15.7 billion bid for the company has it once again looking
to start negotiations to sell its business.
According to the report, a number of large hedge funds that own shares in the company have threatened to wage a proxy fight to remove board members at the next annual shareholders’
meeting if Albertsons doesn’t take action.
Back in December, Albertsons announced it was taking itself off the block after the board decided it had not received an offer commensurate with the company’s value.
At the time, Albertsons’ CEO Larry Johnston said the exercise had helped the company get a better handle on what it needed to do moving forward. “We did a deep dive into every
area of our business, and we know a lot more about our strengths and our challenges than we ever have before. Armed with this knowledge, we can move forward decisively to make
improvements that will allow us to continue to be one of the nation’s largest and best food and drug retailers,” he said.
Burt Flickinger III, managing director of the Strategic Research Group, told the Idaho Statesman that Albertsons’ change of mind would give “bidders a chance to regroup.” He
expects that will mean higher bids in the new round of negotiations.
Mr. Flickinger doesn’t think it should be assumed that Albertsons will sell the entire company this time around either. It is possible it could simply sell off underperforming
assets, he said.
Moderator’s Comment: What do you think is going on at the top levels of Albertsons? How do company managers keep everyone focused on “business as usual”
with so many rumors and uncertainty surrounding the company? –
George Anderson – Moderator
Albertsons’ board and top management sent its soul into the financial afterworld in December, some aspect of its future fortune to spell. Albertsons was hugged by three lovers but treated them all like brothers. Soon a strong voice was heard to say, “You are turning Heaven into Hell. Get off the pot and sell.” Hopefully the Boys in Boise aren’t tone deaf.
Albertsons has no choice but to move quickly to find a buyer. Once you put yourself in play to be sold you have no choice but to go forward. The longer they wait the more turmoil they’ll face amongst the employees. The longer it takes to sell the more time it gives Safeway to roll-out their new retail format and the more time it give Wal-Mart to open more Supercenters.
Hey, anything’s possible. When I worked in NYC, I read the NY Times on the train on the way in, and the NY Post on the way home, with a beer. It’s that kind of paper. I’d be astonished if such news came first from the Post, which is better known for “Mom Kills Dad, Takes Lezzie Lover.” I do think shareholders of Albertsons will make more money if they sell it off one way or another, rather than continue on in today’s nasty market. So that could easily drive actions such as this. I see a lot of activity (good and bad), but little sure-footed direction at Albertsons, and that’s not good. I’m also seeing rapidly rising public (and shareholder) anger about the pay/bonus packages top execs are writing themselves, so perhaps Larry should get out while the getting’s good. (He is going to walk out with soooo much money. We all know it. But why?)
It was a mistake for Albertsons to announce the sale yet decline legitimate proposals. Larry Johnson and his board must realize there is a matter of “integrity” at stake. They would be well served to review their strategy while committing to an action plan upon forthcoming proposals.
In produce there is a saying “The first sale is the best sale.”
Albertsons already missed the first sale so they should probably sell a.s.a.p. Now that the potential buyers know that there is tremendous pressure to sell, the price will go down – not up. The sellers are too motivated.
Question for the group: Assuming that Albertsons does move forward again with another “sale,” do you see the consortium that held the highest bid (including SuperValu, Cerberus Capital Management, and Kimco Realty) as willing to throw their hat back into the ring for another try?
While I agree w/ both Warren and Anne that the “Post” needs a chaser (perhaps something 100 proof), I have to side w/ Warren that it seems odd that this story would break there – not so much because of the “Lezzie Lover” slant, but because I see no connection: Albertsons is HQed in Boise, and all the world’s hedge funds operate out of Westport ( well, somewhere in the Nutmeg state).
As for Albertsons and it’s impending sale/breakup/demise, not much I can add – 86% of respondents can’t be wrong:
CLEANUP IN AISLE 1!
It is very distracting for associates, who also have to deal with customers. Customers think that, because you’re up for sale, the quality of goods goes down, there’s less customer service, and everything is a direct result of the stores being up for sale. Albertsons, if they would listen to their associates, could learn a lot about how to keep customers shopping at their stores. Let’s focus on selling products with value to the customers, and give superior customer service. Let’s put an emphasis on the departments that don’t fare very well – for example, checkout. The average wait time to checkout… never enough baggers, or at the deli on a Sunday, busiest shopping day of week, only 3 associates to handle the crowds…very frustrating. The company is too focused on their number one expense — payroll. Nothing else matters, hit the almighty payroll budget at any cost!!!
It is simply absurd to think that ABS was able to learn anything in the bidding process that was so novel and insightful that it enables LJ and the Gang to evolve a new breathtaking plan to make their company a compelling turnaround.
If they learned anything, it has to be something about its value and assets, which is only useful in selling it off, not in operating it in its current form.
After three plus years under the current leadership, there is no evidence that ABS knows how to become a more compelling retailer. Time is not on their side.
This seems to be just another in a succession of missteps by Albertsons. They should have given a lot more thought to the type(s) of offers they might receive. Either the lock, stock and barrel or the piecemeal should have been crunched before they started. I think some of the blame has to go to the investment bankers offering advice. They got paid a large fee, I’m sure.
I respectfully disagree with the commentator above. While clearly beer is a great accompaniment to the New York Post, both the Post and the Daily News are well known for breaking important stories before the national press.
As for Albertsons, if the market is too tumultuous, don’t throw your hat in the ring in the first place. Once you’re there, and the market begins to set your value, it’s hard to go back. With all the changes in retailing these days, the future market conditions for Albertons look at least as shaky as the current ones.
As usual, top management’s first concerns are “what’s in it for me?”, “how can I get richer from this?”, and “how can we spin this so we look like we are heroes?”
It will be very difficult to keep employees focused. My experience has been that employees are in denial until the stores close. They always want to hope for the best. Employees in the underperforming stores probably don’t have much to look forward to. In the stronger divisions such as Shaw’s and Jewel, it might mean a new beginning and a better working environment. Grocery retailing is like a sled dog race, if you are not the lead dog, the scenery stinks. Albertsons is a distant “also ran” in many markets such as Denver, Oklahoma City, Dallas, Tampa, and Miami. They bailed out completely in Memphis, New Orleans, San Antonio, and Houston, unable to compete with even some of the most inept retailers such as A&P, Winn Dixie, and Safeway. Since they really are not all that suited to compete in retail, it is no surprise that the stockholders want them to sell because it’s unlikely they will be able to improve over time.
I believe that it would be wise for Albertsons to not sell the company as a whole, but actually sell off parts of the company. Meaning, give bidders a chance to bid on the different banners that Albertsons owns. If they do this, more bidders would probably come forward because the bidding would actually be accessible to some well-run, trustworthy, companies other than Kroger or even Safeway. For instance, Albertsons Chicago based Jewel-Osco Supermarkets would definitely fit nicely into the Supervalu portfolio, giving Supervalu a chance to run a well established supermarket chain in a major metro area. A nice step up from it’s Cub Foods banner. Back to the point — Albertson’s as whole — one big piece of pie for one company to eat.
This sale is a result of poor direction and mismanagement. If Albertsons assets were valuable, the due diligence which any purchaser would have done would have given them substantial reason to pursue the original sale or some derivation thereof. Albertsons had some issues which caused the original group to withdraw. We will not see them in the bidding again (at least not as their original team), and the sales price for the assets which Albertsons is selling will certainly be less. There are too many questions which need to be addressed on the original company’s valuation and its assets. The longer this attempted sale takes, the less viable the assets are as a group and the less probable someone will want them.
Albertsons’ leadership has been in question ever since Larry Johnston took the reins. Experienced folks in our (the supermarket) business years ago predicted the day when the chain would melt down under his leadership. The idea that it took the due diligence required by a potential sale to do “a deep dive into every area of [their] business” is a telling sign. They should have already taken that particular dive, not the dive they’re currently taking by letting their business slide.
Contrary to the comment by Acme, the appropriate produce department-derived truism here is “it’s always best when it’s cheapest.” While referring to plentiful, ripe, heart-of-the-season fruits and veggies, this adage also applies to Albertsons. The market will set the appropriate price for the chain, which is ripe for the picking. Harvesters await and will begin work promptly unless Albertsons’ leadership chooses to let the chain rot in the field.
The NY Post seems to be breaking more stories lately. They were first with the Home Depot returns story.
Albertsons top management, certainly including the board, consistently exhibits their amateurishness: in strategic thinking; implementation; management; and deal-making. The previous deal’s failure will concern future bidders, because there seemed to be no special surprise external reason. Many deals include break-up compensation going to the buyer, paid by the seller, in case the deal is not properly finalized. Conducting due diligence costs a bidder time, money, and pride so they get hurt when a deal blows up. Let’s see if the next winning bidder includes a break-up provision in the proposal. The company’s excuse that the exercise of selling made them realize how wonderful their future will be is an awful assertion, making them look even more foolish. It’s like saying, “We didn’t know how to run the company but these outsiders told us how.” Morale was bad before, how could it be better now?
Many professional investors will support management if the management announces reasonable goals and generally achieves them. Yes, there are some investors whose idea of “reasonable” might not seem reasonable, but most take management at its word until they’re burned. When they’re burned they either sell the stock or look for a board they can trust. Professional investors take action because THEIR investors demand reasonable standards of performance. Can you blame them?